Twenty years ago or so (probably a bit more) at the dawn of email usage, I received a note from an old friend.
He was one of my best friends in high school. We hung out often, shared a locker for three years, and even went on double dates with our girlfriends.
We had lost touch through the years though. I went off to college, then graduate school, then off to the work world. I had met my wife, we married, and then moved from Pittsburgh to Nashville for my third job since graduating with an MBA.
He had stayed in our hometown and started working right out of high school. He had married his high school girlfriend and they had a child or two.
We hadn’t talked in probably 10 years at the time I received his email. But that didn’t stop him from getting really personal really fast.
The email was short and sweet. The gist was he wanted to know if I would “lend” him $70k to pay off his debts.
As you might imagine, I was stunned. Let me list the reasons why:
- We had lost touch through the years and now he tracks me down to ask for a fortune? Just seemed a bit strange.
- The magnitude of the debt amazed me! For $70k you could almost buy the entire town I grew up in! What did he do to get into such a mess? By this time my wife and I had counseled many people like this so we had a hunch how it happened (likely over-spending on credit cards).
- I was shocked that he would have the nerve to ask. He must have either been desperate or thought I was easy pickings.
- For some reason he thought I had $70k just laying around.
After talking to my wife to get her opinion on what to do (I was never going to lend him anything, but wanted her thoughts on how to tell him “no”), I sent him a note saying:
- It was good to hear from him (which it was).
- We didn’t have $70k to lend him. (We probably could have come up with $70k, but we didn’t have a dollar to lend to him…)
- We’d found in our counseling that money usually wasn’t the solution to a big chunk of debt — that a change in behavior needed to happen first or else he’d end up in the same place again.
- I offered to send him some books on budgeting and even work on/review his budget with him.
It will probably surprise no one that he never responded to my email. He did, however, begin dodging my mom when he’d run into her back in Iowa, probably because he was embarrassed by the whole situation.
A Family Member Needs Help
Fast forward five to ten years. We now had two kids, lived in Michigan, I had moved through a couple jobs, and we were close to becoming financially independent.
One of our relatives asked to borrow a small amount. I can’t remember but I believe it was either $500 or $1,000.
My wife and I talked it over and decided we would not lend them the money. Instead we would GIVE them the money. And that’s what we did.
They were very thankful and told us they would pay it back despite us saying it was a gift.
I had forgotten most of this transaction until we were recently with the couple. The wife mentioned “that time we were in need and you helped us.”
Her statement made me feel glad we did it. They were just in a bit of a tight spot, needed some help, and we could do it. That’s all they needed and were fine after that.
A Friend in Need
Fast forward to a few months ago.
We have a friend who was having money issues.
Many of her problems were self-inflicted in that she:
- Moved to Colorado without a job.
- Decided she needed to take a year off so she depleted her savings.
- Didn’t even begin looking for a job until the money was almost completely gone.
- Signed a one-year lease on a house before she had a job (I have no idea why someone would rent to her).
- Had an unreasonable standard for the type of job she felt was suitable for her. Translation: Many jobs were beneath her. She struggled to find one that met her criteria but was reluctant to take even a part-time job in the meantime to help herself out.
- Set her standard of living at $60k per year — what she deemed to be a “livable wage.” More on this in a minute.
- Wasn’t willing to make lifestyle changes, the most obvious of which was to get a roommate to cut her biggest expense in half.
While all this was going on she was fretting, lamenting, etc. how bad her situation was. She was looking for work but only jobs that met her criteria for status and income. And IMO, she wasn’t the caliber of employee who was probably worth $60k, so it became an issue.
Eventually she became desperate and took a few lower-level jobs (like pizza delivery of all things) to help her get by.
We and another couple wondered how (and if) we should help her. On one hand, she was our friend. But on the other, she wasn’t really doing herself any favors. Plus I had seen situations like this before where once a person was helped a bit, they expected more and more help over time.
My wife and the wife of the other couple decided to take our friend out to lunch. They chatted and offered some advice, then gave her a card with $100 in grocery store gift cards in it. After that we may have given her a few more gift cards, but there wasn’t much more monetary support for the reasons noted above.
Making a Livable Wage
Eventually our friend got a job — though it wasn’t of the status (or in the industry) she wanted. It wasn’t up to her pay grade either. The job was somewhere in the $40k per year range, an amount I thought was probably pretty appropriate based on what I knew of her skills and experience.
By the way, she had interviewed for TONS of jobs, some of which met her criteria for status but none on pay, and been rejected from them all. My guess is that she’s not a very good interviewee.
One day she called and asked us both to get on the phone. Oh no…
Her “ask” was basically this:
- She was making $40k.
- She felt a “livable wage” in Colorado Springs was $60k.
- She was asking a few friends to commit to monthly gifts to make up the difference.
Now if I thought my high school friend had some nerve asking for $70k, I was sure this was pretty nervy. I’ll be interested in your thoughts on it.
Of course, there was no way we were going to “support” her.
First of all, anyone who thinks it takes $60k to live here is whacked. I know there are a large number of families in our area who live on a lot less, so there’s no way we’re buying into that.
Second, she still wasn’t willing to make the hard choices to get her finances under control. She didn’t have a roommate (she did get one later) nor was she considering other options like moving to a lower cost of living city (she had no ties here.) She simply wanted to live life at a certain level and wanted her friends to pay for it.
Third, we give to people in need, not those in want. She was clearly the latter.
Finally, we didn’t want to create any more reliance on us than we already had. She knew we were retired and while we don’t live a glamorous lifestyle she probably assumed we had money. Since we had given her the gift card, she expected more and this feeling was only going to grow over time.
We politely told her we were not up for this, but that we did give to the church and one of the church’s services was financial counseling/assistance. If she wanted to take the counseling, they would evaluate her finances and provide assistance if she was in need. Not surprisingly, she didn’t take us up on the offer.
Buying a House
A few weeks later I saw her at church.
She said she was looking at a house the next day…to buy.
About a million thoughts were running through my head, not the least of which was “who would lend her the money?” and “how could she afford a house?”
Before I could ask any questions, she blurted out that:
- The house was $200k (2 BR, 1 BR).
- Her payment would be $1,000 a month versus her rent of $1,200 a month (I have no idea if she factored in all the other costs associated with a house).
- All she’d need to buy was a $5k down payment since she was a first-time buyer.
Then she said, “So I may be in touch with you soon as I’ll need to borrow $5k from you.”
She said it in a tone that was in no way a request but more of a demand.
I was dumbfounded and all I could do was laugh and say, “Yeah, right.”
To which she replied, “No, seriously.”
I simply said, “Oh.” I didn’t know what else to say.
She promised to get back to me as soon as she knew anything since “we’d have to move fast.”
Thankfully, we never heard anything back so we dodged that bullet. It probably sold overnight in our hot housing market.
Spendthrift Wife
I have another family member who I think is setting the stage for some help.
His summary is:
- He and his wife make $90k together.
- She spends it all and then some.
- He wants to retire soon, but can’t get her spending under control.
I can see it now that we’re going to get a request to help out. There’s no way we will.
If one spouse is a spender then there’s no amount of money that will save the other one. We’d be pouring money down a drain (like he is now).
His only option is to get her under control (which he’s tried, but she’s not willing to change) or be pulled under with her.
Why Ask Us?
There are probably a few other stories like these through the years, but these are the ones I remember.
There would probably be many more except that we practice stealth wealth. From the outside, we look like everyone else so other’s probably assume our finances are similar to theirs.
But once you retire at 52 the cat is kinda out of the bag. LOL!
Tack on trips to Grand Cayman every year plus adding one or two similar trips and we’re not so stealth any more to those who know all the facts.
That said, to those who simply look at the house we live in, the cars we drive, the clothes we wear, etc., we look pretty normal. Some may even think I can’t find a job and that’s why my wife HAS to work at the church 15 hours a week. Hahahahaha…let them think that. At least it will keep them from asking for money.
Others Have the Same Issue
Apparently, we aren’t the only ones with this problem.
In my post titled The Case for Spending More, one reader made this comment to another reader:
Sam, I believe 10X spending is only for those who have already won the game (Financially Independent, “Retired”) AND with enough money to receive a high income from their assets for the rest of their lives.
For those of us who are still playing the game, we must be frugal, do what we can to increase our Earnings, Save as much as we can, and Invest as much of those savings as we can, and as early and as frequently as possible.
As for giving your family money, my 2 cents is to keep your finances a secret (Stealth Wealth). Only your spouse should know how much you make and how much you have saved and invested. Otherwise, family and friends will never stop coming out of the woodwork to as for a loan (gift).
If your family is truly in need, have an emergency, help them by all means. But don’t let them think of you as their Emergency Fund. As someone once told me, don’t lend your family money, or you’ll end up without the money and without the family.
Your high salary, combined with the fact that you are reading ESI tells me you are on the right track. Congratulations, and good luck to you!
To which another replied:
I have to second what Diogenes is saying.
Unfortunately, the gulf between my (and wife’s) wealth vs just about everyone else in our extended families is very wide. Most of our relatives, even the ones leading middle-class lives, exist on a hand-to-mouth basis, and there are a handful of elders that would be living in outright poverty, but for relying on the generosity of others, namely their adult children.
My in-laws (may they rest in peace) were the exception to the rule – they were the original millionaires next door – modest folks from modest means who were professionally successful, saved and shaved pennies, lived below their means, and ended up being worth north of $1mm on top of retiring to generous pensions, so the assets were not even touched until the very end (we made FI well before inheritance, but yes, that was a nice icing on the cake so to speak).
From them, I learned thru observation to downplay what you have in the bank cause someone in the family is always going to be sniffing around for a “loan” (i.e. handout). Sometimes they took their fiscal conservatism to extremes, but I kinda get it now in a way I did not before.
I’ve been fortunate (and worked very hard) to be able to generate a significantly above-average income much of my career, but for a long time we were able to hide the economic divide – for example we always drove crappy old beaters paid for in cash when everyone else was driving shiny new (leased) cars. I am sure many family members thought “gee I thought he was so successful and all but looks like can’t even afford a decent car…”
Fast forward 25 years and while much of our lifestyle is not in plain sight, we can’t exactly hide our million dollar homes, or the luxury cars (though still bought used and paid for in cash). They know the divide is huge because as they have aged, they have struggled and life doesn’t seem so easy any more. They don’t quite know why they are struggling – they blame the politicians or the rigged system or bad luck, or whatever, anybody but themselves. Therefore, if we are doing better, we either simply won the lucky lottery or we’re on the receiving end of the rigged system.
Either way, these are folks who feel they are owed something because of all of the above. Which makes us targets. In any case, the mentality is that were the roles reversed, of course they would be oh so generous. Maybe they would be. I don’t really care. I don’t want to be the family bank.
Over the years, wife and I have developed a system of dealing with family requests: (1) Hesitate. Don’t jump in to solve the problem too quickly, let the dust settle, give people time to solve their own problems. They are more resourceful than you and they think they are. You are just the easy answer. (2) Make yourself the hard answer, not the easy answer. Ask probing and uncomfortable questions. Make sure you understand what happened, how they got there, and how they will make a long-term fix. Don’t let anyone squirm out of providing real answers. Folks hate answering those kinds of questions. (3) If you are inclined to proceed, make it very clear what you can offer is a LOAN, with very specific repayment terms. (4) Make it very clear they only get ONE money ask – period. Forever. That will at least make them think twice. (5) Do not provide the entire amount required to solve the problem – if practical force them to seek other resources too.
Make no mistake, this approach has caused some broken relationships. But, I have to ask myself, were those real relationships if our value is only in being the bank. There are people, even family, that you simply do not need in your life if they are too toxic and self-destructive. There have been truly dire situations that we have helped people out of, and we plan to help some of the younger generation with student loans, and we feel good about all that. You just have to be very selective and careful not to create dependency.
So yes. Others are dealing with these issues too. My guess is that many reading this are in the same boat.
How We Handle Requests for Money
Though we haven’t had a lot of opportunities to test it out (thankfully), we do have a basic framework for how to handle requests for money.
I thought I’d share our thoughts and then let you chime in with your wisdom.
Here’s our general philosophy:
1. Our policy is to not lend money to friends or family.
Giving someone, especially a close friend or family member, a loan just creates issues IMO. I’ve seen way too many loans go south because of the funky dynamics it creates.
Consider this from CNBC:
If you lend money to friends or family, beware: You may never get it back.
What’s more, you could permanently damage your relationship with the borrower. That’s the findings of a new survey from Bankrate.com, which found that 46% of adults who lent money suffered either one or both of those consequences.
“The stats are pretty striking,” said Ted Rossman, industry analyst at Bankrate. “Basically half the time, something goes wrong.”
Among the biggest relationship killers were co-signing a loan or other financial product. Survey respondents said they also damaged their credit score and lost money in the process.
I don’t need or want that in my life, so we don’t do loans to friends and family.
If we don’t want to give them anything, we simply say we don’t have funds for loans in our budget at the time. (which is true since we never have funds in our budget for loans.) 🙂
2. If we decide there’s a legitimate need and we can and want to fill it, we give them the money.
We do give money if we think it’s really needed, will be used for a good cause, and will handle the problem (not just extend it).
We also may give less than what’s requested plus add our advice on how to handle the issue if we have some special insight.
We are clear that the gift is a one-time deal — and that they shouldn’t expect more. If they do ask for another round, the answer is “no.”
Of course, there are exceptions and as I said, we haven’t had lots of opportunity to be tested, but these are our general plans.
What about you? Anyone out there been asked to lend money to friends and family? How did you handle it? And what’s your policy on lending money to friends and family?
Great article.
I don’t think your kids are adults yet…but do you have any comments on giving money to adult children?
If the parents are successful…but the kids are not….it is painful to watch them struggle, and even more painful to watch them making poor decisions.
My opinion has been…if you give money, but they don’t fix the behavior that got them there in the first place…you are going to get more of the same behavior.
Would be interested in your comments.
I addressed this (at least partially) here — though I haven’t figured it out myself:
https://esimoney.com/how-much-economic-outpatient-care-is-too-much/
I think you handle it pretty much the same way. Don’t be an enabler. Help them with counseling, books, etc. Don’t give them money just because.
Yes, it’s kids… it’s painful to watch them struggle. But they have to learn. You can help them learn. You can’t learn it for them.
Very god article. My family is way better of then the other siblings and they sometime like to joke that I am “the wealthy one in the family” (which I have to say I kind of resent…me and my husband work a lot for that money, I bring my own food to work, don’t go out tor restaurants that often). So they see the money part, but not the change in behavior and mentality that we have maid to reach this point. So when they need money, what do they do? Call for member of family that is the appointed loaner.
I struggle to refuse people when they ask for money. Maybe I am afraid the relationship will be ruined. After reading your article, I know I have a lot to think about. Thank you.
It is very tricky to handle things like this because the individual asking is Famiiy or a close friend.
As a physician I thought I would get hit up a lot more but fortunately I haven’t. There was one request I had from a former employee who needed $3k to cover I believe an upcoming rent and said he would be evicted if couldn’t come up with the funds. I told him that unfortunately I wouldn’t be able to help him out and lo and behold he ended up being resourceful and worked it out on his own.
A wise man once said “If you want what I have, do what I did.” My wife and I worked hard and sacrificed for many years to get where we are in life. We wouldn’t give/loan 10 cents to someone that’s led a financially irresponsible life.
My spouse works at a church and sees a lot of people in need. Some of them come directly to us.
In one instance, husband needed rent money or they would be evicted Christmas Day. We personally agreed to give them the money this one time in exchange for his help on some house projects. That part worked out okay; he did help out as promised.
The funny (sad) parts were these:
1. Same husband later told spouse that they had had a great Christmas, scoring a terrific deal on “a couple of” hi-def TVs that they had to buy because the prices were “so good.”
2. This family goes on at least one if not two cruises a year, but worries about utility bills.
3. Spouse helped family move from one rental to another and in doing so packed their multiple Dave Ramsey books!
Interestingly, sorting out when to help and when not to is an ongoing challenge for church Samaritan ministries.
This posted in the wrong place – no edit button to adjust.
Where did you mean to post it? as it’s own comment? If so, it’s fine where it is.
So interesting that people live lavish lifestyles and then struggle to pay for basics, but I think that’s very common.
Parents have no savings, are getting old, and struggle day to day due to self employed earnings volatility. Will help out since all the earnings go to cover medical expenses. But they’ve struggled with earning enough ever since I was born. Mom couldnt work. Very hard to change someone that refused to change to a stable job, stubborn about budget, but is also struggling with severe medical issues. Parents are hard issues… Will need to support one or both depending on who passes on first.
Entitlement is such a shocking epidemic. In what world is it acceptable for a grown person to solicit friends for monthly gifts while they turn down jobs which they view to be beneath them? Proving yet again that the hardest TEA to swallow is REALITY!!!
LOL, thanks for reposting my “system”. Would add that the largest loan we’ve ever made was several thousand dollars to a relative who was about to loose their home to the bank – had of course been remortgaged several times over. We really did it for their kid, not the irresponsible parents. And we were willing to kiss that money goodbye.
Fast forward 10 years and the couple we lent the money to, eventually repaid us in full, kept their house, kid now a college grad, and are thriving. So, it does sometimes work out. I also think its an immense source of pride for them, that they actually repaid us (not the norm in that part of the family).
They are probably still not being as responsible as they should about saving and debt, but not my problem – there will not be a second bail-out.
It’s a good system, MMiguel. LOL…yeah, I’m honored that my comment from a previous ESI post was too re-posted on this ESI post.
Thanks, ESI, for another great and helpful post!
The comments from both of you originated through my comment 🙂 :)….thanks again!!
This one is not a problem for me, I simply say “NO!” The only exception to this is if they bring me collateral and sign a promissory note. I loaned a good friend $7000. last year, charged him 5% interest AND held his Rolex as collateral. The Rolex was worth $9000 liquid had I sold it to a local jeweler so I had nothing to lose. This arrangement worked out a she paid off his loan within 10 months (promissory note/loan was for 12 mo’s) and received his Rolex back.
So this is such a relatable article. My husband has “lent” money to his adult children over and over again until he finally got that it did not do anything to help them. I do think that sometimes less is more, and when you do nothing you give people the opportunity to “problem solve their shit” so to speak.
I also agree that if someone does have a real issue, just gift them a small amount. When its structured as a gift, it does not cause resentment. The grocery gift cards for example, are a great idea.
My husbands daughter is 45 and has had her husbands mom basically bail them out of everything, so of course there is always this pressure to do the same but no amount of bailing out has ever made their situation any better and of course endless bailouts have caused a great deal of entitlement. Giving money is always an easy fix.
Her last visit here she was whining about how they do not have enough money to buy a house (they really can’t afford) and I could tell she was leading up to “could you give us money” and I told her there are tons of programs out there for first time homebuyers. I offered to research some options, guess what I got, crickets! She just wanted the quick fix, the money.
Sucks to have poor relatives – but sucks to have rich ones too. Best to remain humble, but we do end up giving a lot of gifts. Great relatable piece.
Interesting stories. With that girl who “demanded” the 5K, I would have been like “…and our friendship is over.” Every time I’m around someone like that, I play that old 80’s song that goes “Ain’t nothin going on but the rent… got to have a J.O.B. If you want to be with me…”
My grown sister and I have observed the same thing with our kids, maybe they learn this in school these days. The kids call and talk about financial problems they’re having, and although they never come out and ask for anything, the implication is clear that they want financial assistance. They’re very good at framing it in a way that makes it tempting to offer to help. I liked being the hero and rescuing my kids from their problems for a while, until it got to be too much. I finally learned to use a simple phrase in response to their veiled requests. When they talked about a problem they were having, I simply said “I’m sorry to hear that.” Commiserate, empathise, but keep the wallet shut!
I’ve only had this happen once. I had an ex-girlfriend who was down on her luck and needed $1500 to pay off some bills. I decided to gift her the money this one time without any expectations of it being paid back. I know she appreciated it and it helped her out of a tough spot.
I have a missionary friend who I’m thinking about providing a gift to help him and his family since most of their need comes from financial supporters because they make very little money. We give to other charities who really need help and when we can be assured that the money is all or mostly going to the actual charity and not “administration” of the charity.
I never plan to “loan” anyone anything. I think that is fraught with peril on many fronts and just not worth the risk.
Friends who ask to borrow money…hmm. I said ‘yes’ four times, years ago. All four were friends, none are today. Two of the four paid me back, after I had to ask. 25% of the money was paid back. Not huge amounts, but certainly not small. Funny thing is, none of these guys were best friends. I rationalized that they didn’t ask close family or closer friends, because they didn’t want to be embarrassed. I liked all these guys, wanted to help them out with no other agenda, and still miss their friendship to this day.
“Asking” is different from “offering” to help a friend or family member. Sometimes money is the only solution to a problem, and it is nice to be able to help others when you can. Much different feel than when you are the ‘mark’ they come to with the request.
Not until years later, did I find out that in all cases they used the loans from me to pay others to which they owed money. And all four were hiding addictions of some kind. Think about that, next time a ‘request’ comes out of left field, or in any tone that is less than humble-and-embarrassed.
Once someone asks to borrow money, they have decided the friendship is already over. If you say ‘no’, you will no longer be friends. If you say ‘yes’, you will keep the appearance of friendship for longer, but in reality you are no longer friends. The truth hurts, but I’m glad I know it.
I loaned close to 100k cumulatively to my brother in last 2 years, which I am now appalled at my own stupidity. I must say this was a tough decision at the time. He’s not a lethargic scumbag mind you. Nor he’s careless with money. He just invested in something that we as family supported but it didn’t work out. And we all are good engineers and academics, but never blessed with good business acumen.
So far, nothing is coming as a clash between us but it pinches me almost every day. That 100k when invested would have been something today. And I am renting in a small efficiency apt, playing nickle and dime game every single day, even though I make a lower 6 figure salary. My brother recently asked for more with a promise of returning it in a week. I said NOOOOO for the first time. He’s cool with it. Should’ve done that long time back.
My husbands favorite line if he is asked for money is to tell the requestor “let me check to see if my wife is willing to get a second job” here is where it originated from.
I have a brother in law that asked for $20k to buy a house, my husband asked him how much he was putting down, he said ZERO. We declined, he called a week later asked for $15k, he received $5k from his church. We declined again. The third call my husband asked some more questions about his income and his wife’s income and how he would pay us back. Not enough income, wife did not work and he had not thought through how he would pay us back. My husband told his brother that he would check with his wife (me) and see if she was willing to get a second job so we could loan them money (his brother did not get the joke). He called back in a week to find out if I took a second job. My husband told him no, he called his other brother who loaned him $10k (put it on a credit card) and never paid him back, ruined their relationship. The house was eventually foreclosed on.
My husband and I always give a Dave Ramsey Money Makeover book to anyone that asks for money, it opens the door to discussing Earning and Budgeting issues, we will not discuss a loan until they have read the book, most of the time they figure out they have an issue and do not pursue
I am a big giver when I see a legitimate need. I try to help where I can, but do not expect anything in return.
I LOVE that line!
I might change it a bit and suggest the asker ask my wife if she’s willing to take a job to pay the loan — just to see what they would do!
Interesting post, and some great insights you shared. I particularly liked the idea of giving someone money rather than loaning it to them when you feel like it is a one-off deal that will make a difference and something you can afford. Excellent.
My only story about being asked for a loan involves a one-time best friend who was always just a step or two away from making his fortune. My family moved to a different town while I was in high school and my friend and I saw each other less and less frequently. It had been two or three years since the last time when I get a phone call from him asking for a $5000 loan that he was going to use to open a restaurant.. I had the money and could have easily loaned it to him. But knowing him and how he handled what money he had (neither of us had that much back then – I just had a little bit more liquid cash), I asked him one question: Have you sold the Lincoln (his car)? When he said no, which I expected, I knew he hadn’t hit bottom. So I told him to give me a call when he had and we’d talk. I never heard from him again, which is sad because we were at one time pretty tight. But I’ve never regretted my decision not to lend him the money.
My earlier comment posted as a reply so trying again as a new comment
I have a slightly different take on this. I like to categorize into three buckets
1. Parents: we spend an enormous amount on “wants” for parents (not needs – they have taken care of that already). Our logic is: they sacrificed their wants and sometimes needs (ie retirement planning) for us when we were children. We can not not do that now that it’s our turn as adults. There is very little that we would not do for them.
2. Siblings: this is trickier but our guiding principle is – we will always be ready to go an extra mile and help out. But we will consider them as gifts and think about our ability to afford accordingly. We will eventually have to say no if we truly can’t afford it as a gift
3. Everyone else (including closest of friends and other family): the principles described in this post apply.
Curious about the groups reactions especially on parents
Great article and comments! I have been asked for small loans twice (less than $600). At the time I did not have the self-confidence to say no and gave them the money. Have not spoken to or seen either of them since. So, if there is someone you don’t want to talk to anymore, the solution is to loan them money!
I think its a great approach to give people opportunity to get their act together with a finance book or offer to review finances. If they are truly friends, they will appreciate it.
There are boundaries in relationships, and we need to be strong enough to enforce them. Otherwise, people will feel like they can cross them all the time.
If I lend to a family member, I give as if I am never going to receive it back, so I’m essence it’s a gift but I don’t tell them it’s a gift.
Someone, mentioned adult children. I seem to always give money to my adult children if I see they are in need. Heck, they are going to get an inheritance anyway. I have two children, one struggles more than than the other.
Great article
Thanks for all the insights. This is one of the things that concern me once folks find out that we have saved quite a bit of money.
Question for the group: how would you handle a case where you decided to help a family member (whether loan or gift) but later another family member is aware of it and uses it as leverage/guilt in their request? It is of course your money and your right to do with it as you see fit, but it seems easier to just say no to everything rather than have to justify why you won’t do it for them too.
You are a sibling. Since when does a sibling have to be equitable in the money he lends or gives to a family member. I am not even equitable as a parent. I try to be but I certainly know that one child is in more need. If a sibling has a problem and uses it as leverage/guilt, I would break off ties. It his or her problem not yours.
Loved your line about giving to people in need, not those in want.
We had 2 family members ask for financial help over the years. The amounts weren’t huge, but at the time we ourselves were barely scraping by.
One guy never repaid us, even telling me the reason was because he knew we’d never sue him! (Until reading your post, I thought that comment “took the cake” for nerve)!
With the other fellow, we drew up a repayment schedule to make sure he knew this was a loan. He started skipping payments, so we reminded him of his agreement, after which he got every payment to us on time.
However, he came back a few years later for another cash infusion. This time we said no. Just days after approaching us, he and his wife took a 2-week vacation to a major resort! Don’t know on whose dime, but thankfully, not on ours.
Interested in the community’s thoughts on lending money to children. How to handle? – do you charge the child any interest or just gift them the money? I agree with gifting rather than loaning but may be better, in communicating to the child that it is a loan, in order to teach them the responsibility associated with borrowing $. I haven’t yet run into this situation directly but may in the future as my child is still in his early 20s.
I did have a family situation that some may find interesting – years ago, my father pressured my grandmother (his mother) to lend $30K to my brother for a down payment for buying his house. My father often treated his mother as the family “bank”. My father told my brother that he could pay back the $30K via $100/month payments with no interest as my grandmother didn’t really need the money. I had a huge issue with this approach as I was managing my grandmother’s finances and knew, especially when she moved into assisted living, that she could have used some additional funds into her portfolio to address any unexpected funding needs. I also thought it was disrespectful to not pay back a “loan” as soon as feasible or at least show good faith by increasing the amount being paid by some additional amount per month. This went on for 11 years with my brother paying back $100/month to my grandmother. I think that my brother should have either paid back more of the money faster (rather than $1200/year) or paid some interest on the money or both. This was a sore point with me for many years as they were taking advantage of my grandmother. Ultimately, I, as the executor of my grandmother’s estate after my father passed away, deducted the remaining balance from my brother’s inheritance and we never spoke of it.
I’ve given monetary gifts to family in a tight spot, or short term loans to friends for various situations… but a grown adult asking the people around them to basically provide them a monthly allowance (40k –> 60k/year) is pretty incredible.
So much wisdom in this article and in the comments! I read them all. A subject near and dear to my heart. I touched on this in my MI-94 interview. I learned the hard way – better not to loan, it almost never works out. I have 2 siblings, one has had multiple loans (not re-payed) the other has never even asked for a dime. Guess which one barely speaks to me? I wrote this in response to ESI’s “What money mistakes have you made along the way that others can learn from?” My response is an easy cut and paste that applies perfectly to this article. “Don’t loan money to family or friends. If you follow the advice above you will wind up being more successful than a few relatives. They may come to you for a loan, or multiple loans. You may think you are doing them a favor, but you are likely not. Give them good advice on how they might handle their finances if they ask, but don’t give them money. I learned this the hard way. “
Great read. I have a policy that I never loan money to anyone. But I evaluate each request and will make the “loan” a gift if I feel the person really needs help. It’s taken me most of my life to finally get to this point. In my past I have given money to people every time they asked. But I finally realized I was being taken advantage of. Now I may pay the bill for someone but I never give cash because I believe there have been times when the cash was not used for the intended purpose.
This is so hard for me, but I have come a long way. I want to live out my faith and values by helping others when I can. But, I’ve learned there is sometimes a fine line between helping and enabling.
The questions about how parents might handle their children’s requests reminded me of my father and his wisdom. Story is a bit long but hope it’s helpful. Big insight in asterisks near the end.
I had a good job lined up after college, but it didn’t start for three months. I used that interim to backpack through Europe.
Of course, I was broke, having just graduated college. I was debt free due scholarships, work and my parents’ support. Some of that parental support was a loan; they had gifted a certain $ amount for college, and anything over that was my responsibility, but they were willing to lend some money – about $3,000 to help me finish.
Dad wouldn’t pay for a hare-brained idea like backpacking through Europe (I asked) – this was 1990 and FAR less common for Americans to do than today. So I funded it through a bank loan and credit cards. The trip was totally worth it, by the way.
Fast forward: I’d been in the new job about a year, paid off the bank, the credit card and the bank of Mom and Dad.
Dad and Mom come to visit, and Dad sits down with a pack of papers and says, “When you decided to take on debt to go to Europe, I thought that was a terrible idea. But you paid it all back including what you owed us. *** I have been investing your repayments on your behalf. The account is now yours. Keep saving and investing for your future.***”
(Note, I knew nothing of this plan until that moment. And I have no doubt that it wouldn’t have been given me if I hadn’t responsibly paid off ALL the debt timely.)
What a blessing! That set me on the road to ESI at a young age.
Incidentally, Dad retired at 54 back in the late ‘90’s, modeling the possibility for his kids. I’ll do about the same, and continue to endeavor to imitate his integrity and wisdom.
I loved this story! Thanks for sharing it!
There is an incredibly simple way around all of this. Simply say no. No no no. They do stop asking.
Esi has a good line–if you want what I have, do what I did. Then, if you do what I did, you won’t need what I have because you’ll have it yourself.
I have loaned money many times. It’s always been small amounts. I know never to loan money to family or friends unless you can afford to lose it. Sometimes I get paid back, sometimes not. But my philosophy is, we give to charity to help the poor, why not help those we know. My housekeeper borrows from me every time her family has an emergency. Banks won’t loan someone $1000 to get through a sudden crisis. She pays me back by cleaning my house. I’ve loaned to a brother, 2 nephews, and a niece. The niece has a spending problem and I probably won’t ever get it back, but if I don’t, then the next time she asks, I will say no. I plan to say “I will feed you if you are hungry, but you have proved to be an unreliable borrower.”
My ex wasn’t financially responsible, and I am frugal (thanks mom & dad!). There were times he was short and I made sure he knew the money was a loan. He refinanced one of his houses and had cash on hand, so I submitted an itemized list of loan instances, and requested to be repaid. He was flabbergasted. I reminded him each time he agreed it was a loan. This was, he needed 2 new suits for a job in the city, not I treated for dinner, type things. I learned to be much more cautious since then.
At the same time, I came into excess money, and know a friend has an upcoming expense, and chose to gift her some money to help out.
Thanks for an insightful post and the comments have been fascinating to read.
LOL, reminds me of our early marriage (still married after 30 years)… like your ex, I was less than responsible with money, I had grown up in a hand-to-mouth environment and just did not know any better.
Like you, my wife has a sharp eye for shaving nickels, a strong sense of justice, the chutzpah to insist on what she’s owed, and yet the capacity for extraordinary empathy and generosity!
In the small businesses we had over the years, she is THE COLLECTOR. Woe be the debtor if she is on your trail.
Fortunately, I learned much from my better half (though it required the occasional smack upside the head), unfortunately sounds like your ex did not.
*high five* for figuring it out & many years of marriage!
The ex also let a 401k be disbursed, while I was steadily saving & rolling mine over when I left a job. There were so many signs it wasn’t a good fit, but there was never a ‘good time’ to end things. Much happier now!
Hi! I’m generally in agreement on all the items. But what is not taken into account is parents. My parents are immigrants and it is one of my goals to get them in a house that is comfortable and pretty. My parents are very frugal, my dad works, my mom stays at home, but she is looking at part time jobs (fingers crossed). They try to save as much. I just can’t imagine living a life where I’m well off but my parents are still struggling. Just a call out. Maybe because I’m Hispanic…that’s just how I feel. It’s part of my values. So, in general, my parents are really the only thing that’s out of scope. My husband would probably feel the same if it was his parents. His parents are in a different socio economic situation.
Agree, for those of us who grew up with financial hardship, supporting parents is as tough an issue as supporting adult children. Unfortunately, my mom (dad passed away when I was a kid) never made much and was not great with money. Fortunately, she retired with a pension and good benefits, and also received what for her was a fortuitous inheritance from a close relative who passed away at just the right time.
Those two things (plus good ole social security) set her up with home ownership and a retirement income. So I got lucky in that respect – I say that “I got lucky” because if she had none of these things I would have been the one making up the difference.
The unspoken truth among much of the U.S. population, which is woefully unprepared for aging, is that the retirement plan for parents lacking adequate retirement resources is their adult kids, who will bear the financial burden, thereby harming their own ability to save and prepare for retirement.
I suppose, really the bottom-line is that one of the reasons its so hard to be financially successful when you are coming from the lower half of the economic spectrum is that you become a resource (I’m putting it politely) for your extended family.
Many interesting stories. Though I agree with the basic gist of the article, I’d like to offer a contrarian point of view.
We’ve loaned money (low five figures) to our in-laws. A want, not a need for their summer house, but also something we knew they could pay back. They did, with agreed schedule and an extra payment for interest.
Years later, we needed money for the company we started (first external funding round which had to be matched by founders). We put in some savings but were not willing to leave zero cash to our accounts so asked a loan from in-laws, similar but a bit larger amount they borrowed years earlier. Now paying it back and will be done in couple years (or faster if the company either succeeds or fails – in the latter case can get full paycheck again;)
When I was a kid, my single parent mom needed a loan for an apartment – our home until I moved out and for her many years after. She got her brother to co-sign. Still remember the day we were able to tell the brother that loan was at the limit (maybe 70% of the apartment value) that we were able to remove him from it. I later learned he also loaned us sometimes for payments but was always paid back. This was in part due to my mother’s bad money skills – the bank absolutely ripped her off with fees and a loan that was paid only twice a year with the cutthroat rates of the day (high double digits). When I was old enough (11y) Iwas able to help her get better conditions and we were better off since.
I think this has to do with giving people whose behaviour you know – no showing off, willing to pay back, acknowledging if something is a want or a need. It helps if you are in similar situation (salary etc wise) and have some visibility.
At the same time, my best experience was not getting a loan from family member. We got a ”lemon” for a house with expensive repairs that were uncovered soon after moving in. Initially it all seemed necessary and I thought we could update the place at the same time. I asked my father for a loan (5 figures). He was very reluctant, then started to set conditions about visiting, overseeing renovations etc. We decided it was not worth it. Experts told us bare minimums for repairs which we did and HOA covered the majority (common structure issues). My father gave a small gift covering those expert fees. We decided not to renovate more until we had the money ourselves. This set us off way more fiscally responsible path, and I realized that while I had all these years been too proud to ask for money, I had always relied on the idea that if something major came up, I had my back covered. (I took bigger mortgage than otherwise would have etc.) Understanding there would be no easy solution got me off to the FI path and eventually this blog as well.
KL,
I don’t think your view is quite so contrarian. Different families, different cultures, will reveal different approaches. Although I don’t want to be the family bank, fact of the matter is that I have loaned money to relatives, including my own mom, much as you assisted yours. The challenge comes into play when there is a wide disparity in wealth between family members, and also when there are folks who clearly don’t have good money sense and can’t be trusted. In my circumstance, if we were an easy mark, there would be a line out the door.
On the other hand, I’ve asked for loans a couple times when I was younger only to be refused. Those were teachable moments in which I learned something about the value of money. And each time I also prevailed without the assistance, which taught me something about self-reliance, not unlike your decision to forego borrowing from your father after you realized it would not be “easy money”.
I feel bad even asking this question, but… my brother has a substantial amount of money available to him. I’m not in the same situation. I have never asked for a loan but did ask for help when my fiancé passed away. I paid him back. Now, I have found a quaint little home which requires $25k DP.
Here’s my question, is it disrespectful to ask my brother for a loan and sign over a portion of my inheritance to him as collateral? Is this something people do? Please advise.
Every situation is different, and all people are different but in my experience anytime a loan was made between family members, the relationship was damaged permanently as a result.
You are putting the relationship at risk by even asking for the loan. Even greater risk if the answer is “yes” and taking the loan. Lowest risk option is find a way to earn that $25k on your own and avoid all the relationship hazards.
My husband and I have made it a policy to not lend money to family or friends. Money just seems like a recipe for damaging a relationship. First, there’s the awkwardness (and sometimes, audacity) of the prospective borrower just asking you. Also, it is highly likely you will never see that money again. Every situation is different. Perhaps, consider making a “gift” instead, one without any expectations of repayment and hence, no potential for any hard-feelings.
We live a humble life and have worked very hard and sacrificed for everything we have, being most mindful of our resources and spending habits. Some might say we are frugal. That’s ok. We are happy and content with our lifestyle.. For this decision has afforded us the privilege to own everything outright. We do have a “nest egg” (though I would feel comfortable with a bit more, given my husband’s recent medical history).
My husband and I were recently put into the awkward position by having his twin brother ask us for a loan of $14,000 (for a warranted, home repair) per telephone. My husband politely told him, “No, we don’t have it”…twice.
Frankly, I was shocked and terribly disappointed with his brother. His request was not only nervy and presumptive, but highly insensitive request given his awareness of our current situation
For, my husband has had tremendous, life-threatening medical issues arise, which included: a Cerebral Hemorrhage, four strokes, a heart attack, and recent heart surgery to repair a hole in his heart. It is a miracle (literally) that he has survived.
He does have permanent cognitive impairment and is deemed disabled. As such, our lifestyle has radically changed. He cannot work and I was required to retire early from my medical position to be his sole caregiver (we don’t have family, other than this twin brother, who resides out of state). Still, we are blessed.
Naturally, there will continue to be on-going medical expenses. And down-the-road, I have concern if our “nest” will be able to cover any assisted living, should that become medically necessary. I have been candid with the brother in the past, making it clear that we are on a fixed income and very mindful with our spending habits, particularly, in light of the recent medical events.
The brother and his wife live in lavish “excess,” not really being able to afford all the “things” they surround themselves with. They are very concerned with “appearances of wealth.” We seem to be extreme opposites of one another in this regard.
We have gently and politely offered “solutions” to their dilemma (eg. getting a roommate(s) for their large, 5-bedroom home, parceling off some of their 15 acres, perhaps down-sizing from their lavish home for 2, selling property items, getting financial counseling, etc.) No…it goes in one ear and out the other. They do not want “help;” rather, they want others to “support” their lifestyle.
Every situation is different; we would gladly assist (best we could) anyone who could possibly be facing an existence without food, shelter, and medical assistance. At best, we would work with them to find “assistance” and the resources to enable them to help themselves.
But this is different. This is a couple out-of-control, who live in excess, and aren’t open to changing anytime soon. They are in their 60’s, complaining they “still have to work,” and all the while, keep spending beyond their means and acquiring new “toys.”
Sometimes, saying “No” is the kindest thing you can do, both for yourself and for the potential borrower. Hopefully, they may learn to look at their situation, become more resourceful, and find a long-term solution to their dilemma.
Apparently, prior to asking us for a loan, my brother-in-law had asked several people ( all declined). His sentiments now was, “They have money!!!! Well, they are all dead to me!” Wow. That tells you all you need to know about “where” someone is coming from. Need I say more?
Of no surprise, we have not heard from my brother-in-law since saying “no” (now 3-months). That is fine with me; he is toxic. Nevertheless, I will continue to keep him in my prayers. Naturally, my husband has more difficulty accepting that his brother “is this way.”
I don’t feel bad saying “No.” You have to protect yourself and your immediate family first-always. And even if you have been nice and bent over backwards to someone, you just may see their “true colors” in the end. Yes, that is definitely a shock at times and upsetting. But you deserve to have kind, thoughtful, loving, and supportive people around you. Life is just too short to do so otherwise.